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How you can avoid PMI depends on what type you have:
Let’s review how each type works in more detail, and what steps you can take to avoid paying either one. How To Avoid Borrower-Paid PMIBorrower-paid PMI (BPMI) is the most common type of PMI. BPMI adds an insurance premium to your regular mortgage payment. Let’s take a look at what home buyers can do to avoid paying PMI. Make A Large Down Payment You can avoid BPMI altogether with a down payment of at least 20%, or you can request to remove it when you reach 20% equity in your home. Once you reach 22%, BPMI is often removed automatically. Take Out An FHA Or USDA Loan While it’s possible to avoid PMI by taking out a different type of loan, Federal Housing Administration (FHA) and U.S. Department of Agriculture (USDA) loans have their own mortgage insurance equivalent in the form of mortgage insurance premiums and guarantee fees, respectively. Additionally, these fees are typically around for the life of the loan. The lone exception involves FHA loans with a down payment or equity amount of 10% or more, in which case you would pay MIP for 11 years. Otherwise, these premiums are around until you pay off the house, sell it or refinance. Take Out A VA Loan The only loan without true mortgage insurance is the Department of Veterans Affairs (VA) loan. Instead of mortgage insurance, VA loans have a one-time funding fee that’s either paid at closing or built into the loan amount. The VA funding fee may also be referred to as VA loan mortgage insurance. The size of the funding fee varies according to the amount of your down payment or equity and whether it’s a first-time or subsequent use. The funding fee can be anywhere between 1.4 – 3.6% of the loan amount. On a VA Streamline, also known as an Interest Rate Reduction Refinance Loan, the funding fee is always 0.5%. It’s important to note that you don’t have to pay this funding fee if you receive VA disability or are a qualified surviving spouse of someone who was killed in action or passed as a result of a service-connected disability. Take Out A Piggyback Loan One other option people look at to avoid the PMI associated with a conventional loan is a piggyback loan. Here’s how this works: You make a down payment of around 10% or more and a second mortgage, often in the form of a home equity loan or home equity line of credit (HELOC), is taken out to cover the additional amount needed to get you to 20% equity on your primary loan. Rocket Mortgage® doesn’t offer HELOCs at this time. Although a HELOC can help avoid the need for PMI, you’re still making payments on a second mortgage. Not only will you have two payments, but the rate on the second mortgage will be higher because your primary mortgage gets paid first if you default. Given that, it’s important to do the math and determine whether you’re saving money or if it just makes sense to make the PMI payments. How To Avoid Lender-Paid PMIAnother option is for your lender to pay your mortgage insurance premiums as a lump sum when you close the loan. In exchange, you’ll accept a higher interest rate. You may also have the option to pay your entire PMI yourself at closing, which would not require a higher interest rate. Depending on the mortgage insurance rates at the time, this may be cheaper than BPMI, but keep in mind that it’s impossible to “cancel” lender-paid PMI (LPMI) because your payments are made as a lump sum upfront. If you wanted to lower your mortgage payments, you’d have to refinance to a lower interest rate, instead of removing mortgage insurance. There’s no way to avoid paying for LPMI in some way if you have less than a 20% down payment. You can go with BPMI to avoid the higher rate, but you still end up paying it on a monthly basis until you reach at least 20% equity. In that case, you’re back to the original amount from the BPMI scenario. This document is provided pursuant to the following provisions under Minnesota law: “Unless the [escrow] account is exempt from the requirements of paragraph (a), a mortgagee shall allow a mortgagor to elect to discontinue escrowing for taxes and homeowner’s insurance after the seventh anniversary of the date of the mortgage, unless the mortgagor has been more than 30 days delinquent in the previous 12 months. . . . The mortgagor’s election shall be in writing. The lender
or mortgage broker shall, with respect to mortgages made on or after August 1, 1997, notify an applicant for a mortgage of the applicant’s rights under this paragraph. This notice shall be given at or prior to the closing of the mortgage loan and shall read substantially as follows: NOTICE OF RIGHT TO DISCONTINUE ESCROW If your mortgage loan involves an escrow account for taxes and homeowner’s insurance, you may have the right in five years to discontinue the account
and pay your own taxes and homeowner’s insurance. If you are eligible to discontinue the escrow account, you will be notified in five years.” (Minn. Stat. Ann. § 47.20[9][b]) A “mortgage loan” is not defined under Minnesota law, therefore we have interpreted these provisions to apply to all mortgage loans. However, we have been informally told by a representative from the Minnesota Department of Commerce that this provision applies only to loans subject to Subsection (9)(a), which are described as follows: “ . . . a mortgaged one-to-four family, owner-occupied residence located in [Minnesota], unless the [escrow] account is required by federal law or regulation or maintained in connection with a conventional loan in an original principal amount in excess of 80 percent of the lender’s appraised value of the residential unit at the time the loan is made or maintained in connection with loans insured or guaranteed by the secretary of housing and urban development, by the administrator of veterans affairs, or by the administrator of the Farmers Home Administration or any successor . . .” (Ibid. § 47.20[9][a]) Due to this, we will be changing the configurations for Cx1004 so that it prints under the following conditions:
Please note that we will not be adding a condition that the loan’s LTV must exceed 80%. The reason for this is because the LTV exception only applies to “conventional loans,” which are basically loans which:
We do not have a trigger to distinguish these types of loans from other types of conventional loans. Therefore, we will be providing Cx1004 for all types of conventional loans even if not legally required. This should not be a problem since the language of Cx1004 is flexible enough that it can be provided in connection with loans where it is not mandated that the borrower have the right to cancel the escrow account, without affirmatively stating that that they have such a right (e.g. the language states that the borrower “may” have the right to cancel the account, not that they “do” have such right). This change will take effect on January 27, 2015. If you have any questions or concerns about this change, please contact Client Support at 1.800.497.3584. January 20, 2015 Which clause limits the amount of the principal that can be paid annually?An annual ARM cap is a clause in the contract of an adjustable-rate mortgage (ARM), limiting the possible increase in the loan's interest rate during each year. The cap, or limit, is usually defined in terms of rate, but the dollar amount of the principal and interest payment may be capped as well.
What is Minnesota's annual usury cap for individuals and some corporations lending to an individual consumer?Minnesota usury law capped the state's interest rates on loans at 12 percent.
Is Minnesota an escrow state?In Minnesota and Wisconsin, money does not go into escrow during the home purchase process. However, after the home purchase closing has occurred, most homebuyers do end up putting money into an escrow account that is maintained by their lender.
What is the maximum civil penalty that can be imposed for a license law violation in Minnesota?The court may impose a further civil penalty against the person for contempt in an amount up to $10,000 for each violation and may grant any other relief the court determines is just and proper in the circumstances.
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According to Minnesota law a conventional loan is one that has an original principal amount of
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